Property market has slowed down in Paris

After a very active January, with vendors keen to beat the new legislation on Capital Gains Tax and buyers snapping up good deals, the property market in Paris has slowed down considerably, according to a new report.

Stock levels have fallen and a two tier market is emerging once again, as prime property sells but everything else is sticking on the market, says the report from property company Lonres.

With the deadline for the changes to Capital Gains Tax (CGT) legislation on 01 February 2012 looming, there was a real sense of urgency for vendors to sell in January. This resulted in a higher than average volume of instructions being recorded for the time of year. Buyers took advantage of the increase in stock levels, combined with low mortgage and interest rates, by putting in reduced offers. This resulted in a slight decrease in prices of 3%.

Since the passing of the CGT legislation deadline, activity levels in the Parisian market have quietened down dramatically. Stock levels have fallen considerably and the market has returned to how it was prior to the changes.

Buyers are found for quality prime stock in the right locations but non-prime stock is proving harder to sell and is once again tending to stick on the market.

‘This is resulting in a distinct two tier market re-emerging. Buyers are still dictating the market and once a property is at the right price it does sell,’ said director of the firm’s French operation, Laurent Lakatos.

The recent Presidential elections meant that the property market in France, including Paris, slowed as people sat tight and waited and see what happens.

‘We expect that the residential market in Paris will be fairly flat for the rest of the year and we may even see falls in the region of 1% to 5%,’ explained Lakatos.

He explained that central Paris has a very different demand base to that of central London. The majority of the prime Parisian market is driven by wealthy French nationals. Presently, many are investing in property in Paris as a means to exit the stock market and to place cash during the Eurozone Crisis.

International buyers are far less prevalent in Paris. The number of multi-national companies with offices in Paris has fallen in recent years and as a result so too have the number of expats.

‘Investing in residential property in Paris is also unattractive to international investors as there is so much red tape involved, no tax loopholes to exploit and tenants are legally very well protected. A few trophy properties are purchased by very wealthy overseas buyers, typically Russian or Chinese, but are either used as second homes or left empty for capital growth purposes,’ said Lakatos.

‘The Paris market is also not influenced in any significant way by bonus payouts. Although some firms do pay bonuses they are generally of a much smaller magnitude and less widespread than London employees and therefore their impact is far less reaching,’ he pointed out.

The funding profile of buyers in the last quarter of 2011 is likely to have been fairly evenly spilt between cash and those taking out a mortgage.

‘In France, it is more appealing to buyers to take out a mortgage rather than pay with cash, even if they can afford to do so. This is because the focus of French mortgages is to repay the capital and therefore it becomes cheaper to take out a mortgage and borrow money than pay in cash due to the effects of inflation,’ he added.